Category: RRSPs/Insurance Policies
In the decision of Knowles v LeBlanc, 2021 BCSC 482, the Supreme Court of British Columbia was tasked with determining which party was entitled to insurance proceeds pursuant to the doctrine of unjust enrichment.
This case involved a life insurance policy held by the Deceased, Peter Knowles, with the CUMIS Life Insurance Company. The policy named the Deceased’s ex-wife, Ms. Knowles, as the sole beneficiary. On the date of Mr. Knowles’ death, the benefit payable under the policy was $100,000.
The Deceased designated Ms. Knowles as the sole beneficiary in 1987, shortly before the two separated. Their divorce was finalized in 1991, when they entered into a consent order, which provided that each party would retain their own property and chattels in their possession or control.
After his separation, the Deceased met Ms. LeBlanc in 1988. They lived in an exclusive common-law relationship until the time of his death in 2019. Throughout their relationship, they shared expenses and made joint decisions about their family property.
After Mr. Knowles passed, Ms. LeBlanc received the proceeds from every other life insurance policy that he held as well as all of his other assets by way of right of survivorship. When she did not receive the proceeds from the CUMIS policy, Ms. LeBlanc contacted the company, who advised her that she was not the named beneficiary of the policy. Ms. Leblanc and Ms. Knowles subsequently made competing claims over the proceeds of the insurance policy.
The Court discussed Mr. Knowles’ intentions, as well as whether he ever attempted to change his beneficiary designation in the life insurance policy. The Court found that Mr. Knowles maintained feelings of hostility toward Ms. Knowles after their divorce, and that he not only intended to change the designated beneficiary on his life insurance policy to Ms. LeBlanc, but that he verily believed that he had done so. As a result, the Court concludes that Mr. Knowles clearly intended to remove Ms. Knowles as a beneficiary from his CUMIS life insurance policy but forgot or neglected to do so.
The Court then considered whether the consent order that Mr. and Ms. Knowles entered into in 1991 precluded Ms. Knowles from recovering the life insurance proceeds. The Court ultimately found that the consent order did not prevent Ms. Knowles from claiming the proceeds of the life insurance policy for three reasons. First, the order did not explicitly refer to the life insurance policy. Second, the order did not specifically revoke Mr. Knowles’ designation of Ms. Knowles as a beneficiary of the life insurance policy. Third, the order did not refer to a “full and final” settlement, or a relinquishment of all claims
Finally, the Court considered whether Ms. LeBlanc had a claim in unjust enrichment giving rise to a constructive trust remedy. In doing so, the Court applied the test for unjust enrichment from Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57 which requires:
- an enrichment of the defendant;
- a corresponding deprivation of the plaintiff; and
- an absence of juristic reason for the enrichment.
The Court easily found that the first two factors had been met. Ms. LeBlanc suffered a deprivation because the premiums of the life insurance policy were automatically deducted from her joint account with Mr. Knowles for many years. Moreover, because Ms. Knowles stood to benefit from receiving the proceeds of the life insurance policy, there was also a corresponding enrichment to Ms. Knowles at the expense of Ms. LeBlanc.
The third element of an unjust enrichment claim is twofold. First, the plaintiff must show that no juristic reason from an established category exists to deny recovery. Second, the defendant may rebut the plaintiff’s recovery by showing that there is another reason to deny recovery.
In their analysis, the Court concluded that the Insurance Act, RSBC 2021, c 1 does not preclude Ms. LeBlanc’s claim in unjust enrichment. In other words, it does not provide a juristic reason for Ms. Knowles to retain the proceeds against Ms. Leblanc’s corresponding deprivation. The Court also failed to find another juristic reason that would apply in the circumstances of the case.
Ms. Knowles was not able to show that there was a residual reason to deny Ms. LeBlanc’s recovery of the life insurance proceeds. The Court focused on the fact that Mr. Knowles was estranged from Ms. Knowles and their two children since their divorce. As a result, it was not reasonable for Ms. Knowles to expect that she would benefit from the insurance policy. The Court was also not able to find a basis in public policy to rebut Ms. LeBlanc’s recovery.
In determining the appropriate remedy, the Court acknowledged that a personal remedy against Ms. Knowles would not be appropriate, as CUMIS had not paid out the proceeds of the life insurance policy to her. Ultimately, the Court imposed a constructive trust to the full extent of the life insurance proceeds in Ms. LeBlanc’s favour.
Finally, the Court cautioned CUMIS to consider updating its records more frequently and to remind its long-standing policyholders of their designated beneficiaries to avoid similar disputes in the future.
This case was similar to Moore v. Sweet, 2018 SCC 52, where the Supreme Court of Canada held that a beneficiary designation was not a juristic reason to deprive the appellant of the insurance proceeds to which she was entitled under an oral agreement. As you may recall, Ian M. Hull, Suzana Popovic‑Montag and David M. Smith represented the appellant before the Supreme Court of Canada, and blogged about their experience here.
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A recent decision of the Ontario Superior Court of Justice revisits the issue of whether a presumption of resulting trust should be imposed in the case of a beneficiary designation.
As our readers will know, the leading case on presumptions of resulting trust remains Pecore v Pecore, 2007 SCC 17, in which the Supreme Court summarized the state of the law relating to property that had been gratuitously transferred into joint tenancy with a non-dependent adult child: the asset becomes subject to a presumption that it is impressed with a resulting trust in favour of the parent’s estate. The presumption may be rebutted by evidence that it was, in fact, the parent’s intention to gift the jointly-held property to the adult child by right of survivorship.
Last year, we saw a couple of decisions apply the principles of Pecore to novel situations, potentially expanding the applicability of presumptions of resulting trust. For example, in Calmusky v Calmusky, 2020 ONSC 1506, the doctrine of resulting trust was applied to a RIF for which an adult child had been designated as beneficiary.
In Mak Estate v Mak, 2021 ONSC 4415, Justice McKelvey reviewed the issue of whether an asset for which a beneficiary designation was in place should be subject to the presumption of resulting trust. The plaintiff residuary beneficiaries of their mother’s estate sought an order setting aside the 2007 beneficiary designation for the mother’s RRIF, under which the defendant, their brother and another residuary beneficiary of the estate, was named. The evidence suggested that the deceased had relied upon the defendant, who lived with her and drove her to appointments after the death of the parties’ father in 2002.
After addressing the issue of whether a presumption of undue influence applied to the RRIF beneficiary designation (and finding that it did not because a beneficiary designation is not an inter vivos gift), Justice McKelvey turned to the issue of the principle of resulting trust, writing (at paras 44, 46):
In my view…there is good reason to doubt the conclusion that the doctrine of resulting trust applies to a beneficiary designation. First, the presumption in Pecore applies to inter vivos gifts. This was a significant factor for the Court of Appeal in Seguin, and similarly is a significant difference in the context of a resulting trust. Further, the decision of this Court in Calmusky has been the subject of some critical comment. As noted by Demetre Vasilounis in an article entitled ‘A Presumptive Peril: The Law of Beneficiary Designations is Now in Flux’, the decision in Calmusky is, ‘ruffling some features among banks, financial advisors and estate planning lawyers in Ontario’. In his article, the author comments that there is usually no need to determine ‘intent’ behind this designation, as this kind of beneficiary designation is supported by legislation including in Part III of the Succession Law Reform Act (the “SLRA”). Subsection 51(1) of the SLRA states that an individual may designate a beneficiary of a ‘plan’ (including a RIF, pursuant to subsection 54.1(1) of the SLRA.)
It is also important that the presumption of resulting trust with respect to adult children evolved from the formerly recognized presumption of advancement, a sometimes erroneous assumption for a parent that arranges for joint ownership of an asset with their child is merely ‘advancing’ the asset to such adult child as such adult child will eventually be entitled to such asset upon such parent’s death. The whole point of a beneficiary designation, however, is to specifically state what is to happen to an asset upon death.
As a result, the defendant was entitled to retain the proceeds of his mother’s RRIF, as the plaintiffs unable to establish any intention of their mother to benefit her estate with the asset without the benefit of a presumption of resulting trust.
In light of the conflicting applications of Pecore under the Calmusky and Mak Estate decisions, it will be interesting to see how this issue may be further developed in the case law. For the time being, however, it may be prudent to take care in documenting a client’s wishes to benefit an adult child by way of beneficiary designation in the same manner as we typically would in situations of jointly-held property.
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Accidental death policies are not to be confused with life insurance policies. By their terms, accidental death policies usually provide that the benefit will be paid out when death results from accidental, external means.
In determining whether a policy is payable, an issue often arises as to the exact cause of death and contributing factors. Further, exclusions in the policy often serve to allow the insurer to avoid payment.
Take, for example, the recent case of Downey v. Scotia Life Insurance Company, 2020 ABQB 638 CanLII). There, the insured died on a fishing trip. No autopsy was performed. The Coroner’s Report noted that the insured died by asphyxia due to drowning, and that the death was “accidental”. Other “significant conditions contributing to death” was “myocardial infarction”, with the explanation being that the insured “had a myocardial infarction and fell out of the boat.”
The court struggled with whether the terms of the policy covered the death. The court ultimately found that the death was “accidental” in that the medical condition did not cause the death. However, exclusionary provisions in the policy applied so as to exclude coverage. The exclusion clause provided that a death was NOT covered if the death was “in any manner or degree associated with or occasioned by” or “contributed to in any way whatsoever” by any naturally occurring condition, illness, disease or bodily or mental infirmity. Although broad, the exclusion clause was not so broad so as to be void. (Exclusion clauses may be voided if they are so broad so as to “nullify the coverage provided in the policy, and would be contrary to the reasonable expectations of an ordinary person.)
The court referred to numerous “accidental death” cases and the outcomes are sometimes difficult to reconcile. For example, coverage was found in the following cases:
- Insured fell from horse, developed pneumonia. Coverage applied. Death was due to fall. Pneumonia was a “sequela” of the accident;
- Insured suffered a seizure causing him to fall and lodge his head in a position causing asphyxiation;
- Insured suffering brain aneurysm causing fall into bathtub and drowning; and
- Insured suffering seizure while driving causing fatal collision.
Coverage was not found in the following examples:
- Insured suffering injury in car accident. Pre-existing condition of hemophilia was “mixed up in” the cause of death;
- Insured fell, died of heart attack caused by the fall; and
- Insured admitted to hospital for congestive heart problems, suffered fall at hospital requiring surgery, died from complications arising from surgery including congestive heart failure.
Accidental death claims can be complicated and raise difficult issues of factual determination: determining and framing the cause of death, and also issues of contractual interpretation: determining what is covered by the policy and what exclusions may apply.
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The answer is no in Ontario. Currently, only a limited number of Canadian provinces (Quebec, New Brunswick, Nova Scotia, and Saskatchewan) will allow a policy holder to sell his/her insurance policy to a third party.
Life insurance policies are commonplace in Canada. A life insurance policy is a contract with the insurance company and it is a contract to pay out a sum of money upon the death of the life insured. While most people may be content to maintain their life insurance policy, as is, until their death, those who are in need of cash during their lives may wish to sell the policy for a present-day payout while the purchaser maintains the premiums (and any other obligations to the insurance company) in exchange for the payout on the death. The sale of a life insurance policy by the policy holder is also known in the industry as a “life settlement”.
According to Tyler Wade’s article on ratehub.ca, the practice of selling one’s own insurance policy was popularized in the U.S. when investors saw the AIDS epidemic in the 1908’s as an opportunity where they could offer those suffering from AIDS a payout during their lifetime in exchange for the death benefit in their policies believing, then, that this group of individuals had a shorter life span. The vulnerability of the individuals within this market group and the potential for financial abuse are often cited as the reasons why life settlements ought to be prohibited for public policy reasons.
In Ontario, life settlements are prohibited under section 115 of the Insurance Act, as follows:
“Trafficking in life insurance policies prohibited
115 Any person, other than an insurer or its duly authorized agent, who advertises or holds himself, herself or itself out as a purchaser of life insurance policies or of benefits thereunder, or who trafficks or trades in life insurance policies for the purpose of procuring the sale, surrender, transfer, assignment, pledge or hypothecation thereof to himself, herself or itself or any other person, is guilty of an offence.”
In 2017 and 2018, there was an attempt to legalize life settlements by amending section 115 (through Bill 162) and by amending the Act to allow third-party lenders to use life insurance policies as collateral (through Bill 20). Both Bills received opposition from non-profit groups like the Canadian Life and Health Insurance Association due to the potential for financial abuse and section 115 of the Act has remained as is in Ontario.
While it is difficult to comment on how the potential for financial abuse can be mitigated by implementing countermeasures, it is unfortunate that Ontarians have limited options once the policy is in place.
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Life insurance can be an important part of an estate plan, be it taken out to fund payment of anticipated tax liabilities triggered by death, to assist in supporting surviving family members, or to equalize the distribution of an estate within the context of the gift of an asset of significant value (such as a family business) to one child to the exclusion of another, who can be designated as beneficiary of the policy.
In a time when many Canadians are facing their mortality and taking the pause from normal life as an opportunity to review and update estate plans, many Canadians are turning their minds to other aspects of estate planning, including supplementing an estate plan with life insurance. A recent Financial Post article suggests that life insurance applications have doubled during the pandemic, as more Canadians take steps to plan for the unexpected during this period of uncertainty.
At the same time, premiums for new permanent life insurance policies have increased by as much as 27%. While term life insurance policies may remain a more affordable option, they too are anticipated to become more expensive, with upcoming premium increases of up to 20%. The increase in premiums has been linked to lowering interest rates and restrictions to the investment options available to insurance companies.
Other changes to life insurance during the pandemic include the exclusion of the standard medical examination required in order to obtain some types of coverage. The maximum coverage offered by many providers without a medical exam has increased to reflect limitations to the ability for applicants to safely attend an in-person examinations. For other providers and types of plans, medical examinations are simply on hold.
Lastly, insurance companies have updated intake questionnaires to include COVID-screening questions. If an applicant is experiencing potential symptoms, they may be required to wait two weeks before taking out the policy, but are not typically ineligible from coverage altogether. Some insurers, however, are no longer offering new coverage to seniors or others who are at a higher risk of complications during the period of the pandemic.
One life insurance provider has already doubled its projected COVID-19-related payouts during 2020 from the figures it had released earlier this year. While there may have been changes to certain eligibility requirements and the cost of life insurance, it remains a suitable estate planning tool for many Canadians.
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The late Donald Farb called his insurance company to renew his travel insurance policy before his trip to Florida. Mr. Farb spent about half an hour with a telephone representative from Manulife to complete the insurance application. He said “no” to a variety of questions regarding his medications and pre-existing conditions. Thereafter, the travel policy was issued on the basis of the information provided by Mr. Farb, and Mr. Farb went on his trip. While he was in Florida, Mr. Farb was unexpectedly hospitalized and he incurred over $130,000 (USD) in hospital expenses. Manulife later denied Mr. Farb’s claim for reimbursement and took the position that his policy was voided on the grounds of misrepresentation. Mr. Farb died before his insurance claim was resolved and his Estate commenced a court application to continue Mr. Farb’s dispute with Manulife.
In considering the Estate’s application, Justice Belobaba of the Ontario Superior Court of Justice reviewed the first principles of the Insurance Act and how the Act is designed to protect both the insurer and the insured. While insurance companies are protected by the insured’s duty to disclose, and the right to void coverage if there was a failure to disclose or misrepresentation, the consumer is protected by the requirement that the application process be done in writing so that the consumer will have the opportunity to review the information provided and to make any necessary corrections before the policy takes effect.
Justice Belobaba found that Manulife’s application process satisfied the requirements under the Insurance Act. He found that there was no issue with the telephone service provided by Manulife and the way that information is collected verbally from the applicant because the completed application form is emailed, in writing, back to the applicant for verification. The emailed and mailed copy of the insurance policy also contained a multitude of warnings asking the insured to review their policy carefully before traveling and that “the policy is void in the case of fraud, attempted fraud, or if you conceal or misrepresent any material fact in your application”.
As evidence before the Court, Justice Belobaba was provided with an audio recording of Mr. Farb’s telephone call with the insurance representative, and a copy of the materials that were emailed and mailed to Mr. Farb. Justice Belobaba found that Mr. Farb had two months to review his answers to the medical questions that were asked of him, and there was no evidence that Mr. Farb ever contacted Manulife to correct his answers, which was sufficient to conclude that Manulife was within its rights to void the policy.
The Estate’s application was dismissed, and you can read the full reasons for decision in Estate of Donald Farb v. Manulife, 2020 ONSC 3037, by clicking here.
Travel insurance should always be top of mind before travelling. It is a good idea to reach out to your insurance company and review your existing policy and the information contained in the underlying application before you go, especially under the present circumstances with COVID-19. The issue of whether testing and medical care for COVID-19 will be covered while abroad is important to consider before any travel plans are finalized.
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Occasionally in litigation, an innocent party will get caught in the crossfire between two litigants that have made competing claims to property held by the innocent party. The classic case is that of an insurance company in possession of the proceeds of an insurance policy, the benefit of which is claimed by two parties.
The insurer may not necessarily be a party to the litigation between the two claimants, but they are nonetheless implicated given that they hold the coveted payout. What is the insurer to do? Enter the interpleader motion.
The interpleader motion is a powerful yet rarely utilized tool that can be used by an innocent party to essentially extricate itself from a proceeding in which competing claims have been made against property held by that party. Rule 43.02 of the Rules of Civil Procedure provide that a party may seek an interpleader order in respect of personal property if,
(a) two or more other persons have made adverse claims in respect of the property; and
(b) the first-named person (being the “innocent” party),
(i) claims no beneficial interest in the property, other than a lien for costs, fees, or expenses; and
(ii) is willing to deposit the property with the court or dispose of it as the court directs.
In other words, the interpleader motion permits a party to seek an order from the court allowing that party to deposit, with the Accountant of the Superior Court of Justice, the property against which the adverse claims are being made. However, that party must not have any beneficial interest in the property being deposited, although they are entitled to have any legal fees in bringing the motion, and other reasonable expenses, paid out of that property.
Some cases have opined on whether the court hearing the interpleader motion has an obligation to assess the likelihood of success of one or both of the claims to the property at issue. In Porter v Scotia Life Insurance Co, for example, the court considered whether, notwithstanding that one of the competing claims was “without strong foundation and built upon hearsay and suspicion”, it nonetheless held that the claim was “not frivolous” and granted the interpleader order.
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The Supreme Court of Canada’s recent decision in Moore v Sweet provided meaningful clarification on the Canadian law of unjust enrichment and, in particular, the juristic reason analysis.
As it made a finding of unjust enrichment, it was not necessary for the Court to consider the second issue before it, being whether, in the absence of unjust enrichment, a constructive trust could nevertheless be imposed in the circumstances on the basis of “good conscience”.
In 1997, the Supreme Court released its decision in Soulos v Korkontzilas. That case considered situations that may give rise to a constructive trust remedy. In referring to the categories in which a constructive trust may be appropriate, which were noted to historically include where it was otherwise required by good conscience, Justice McLachlin (as she then was) stated as follows:
I conclude that in Canada, under the broad umbrella of good conscience, constructive trusts are recognized both for wrongful acts like fraud and breach of duty of loyalty, as well as to remedy unjust enrichment and corresponding deprivation…Within these two broad categories, there is room for the law of constructive trust to develop and for greater precision to be attained, as time and experience may dictate.
Since 1997, Soulos and the above excerpt have been interpreted inconsistently by scholars and courts of appeal throughout Canada. Some consider Soulos to restrict the availability of constructive trust remedies to only situations where there has been a finding of unjust enrichment or wrongful conduct, while others favour a more liberal interpretation.
The appellant in Moore v Sweet sought, in the alternative to a remedy on the basis of unjust enrichment, a remedial constructive trust with respect to the proceeds of the life insurance policy on the basis of good conscience. In choosing not to address this issue, Justice Côté (writing for the Majority) stated as follows:
This disposition of the appeal renders it unnecessary to determine whether this Court’s decision in Soulos should be interpreted as precluding the availability of a remedial constructive trust beyond cases involving unjust enrichment or wrongful acts like breach of fiduciary duty. Similarly, the extent to which this Court’s decision in Soulos may have incorporated the “traditional English institutional trusts” into the remedial constructive trust framework is beyond the scope of this appeal. While recognizing that these remain open questions, I am of the view that they are best left for another day.
It will be interesting to see if and when the Supreme Court ultimately chooses to determine “the open questions” regarding the availability of the remedial constructive trust. Until then, it appears that some debate regarding the circumstances in which it may be imposed will remain.
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If a party refers to a document in a pleading, the party de facto waives any privilege attaching to the document, and the document has to be produced.
That is the lesson that we are reminded of in Master Short’s decision in TTC Insurance v. MVD Law, 2018 ONSC 2611 (CanLII).
There, TTC Insurance, the insurer for the TTC, alleged that the defendant engaged in an unlawful scheme to defraud the TTC by intentionally submitting forged invoices. In the Statement of Claim, the plaintiff referred to an audit and investigation that was carried out by the plaintiff. The defendant sought production of the details and results of the audit and investigation. TTC Insurance resisted, claiming privilege.
Master Short ordered the plaintiff provide the contents and results of the audit and investigation giving rise to the claim.
Master Short cited case law to the effect that a waiver of privilege does not occur simply because a party refers to the receipt of legal advice, or where a party states that they relied on legal advice. However, it is waived where the party uses the legal advice as a substantive element of the claim. “It is waived when the client relies on the receipt of advice to justify conduct in respect to an issue at trial.”
It should also be noted that once solicitor-client privilege is waived, the waiver applies to the entire subject-matter of the communications.
Master Short’s succinct conclusion was that a party is entitled to have produced for his inspection any document referred to in a pleading or affidavit delivered by another party whether or not that document would otherwise be privileged. Master Short also relied on Rule 30.04(2) which provides that a request to inspect documents may be used to obtain the inspection of any document in another party’s possession, control or power that is referred to in the originating process, pleadings or an affidavit served by the other party.
Thus, be careful of what you plead: if you plead a document, you will have to produce it, privileged or not.
As Master Short set out in the preamble to his decision:
The Moving Finger writes; and, having writ,
Moves on: nor all they Piety nor Wit
Shall lure it back to cancel half a Line,
Nor all thy Tears wash out a Word of it.
Have a great weekend.
The practice of injecting policy considerations into court decisions has long been a tenet of the Ontario judiciary. However, such considerations may arguably raise questions that go beyond the scope of the decision. Cotnam v Rousseau, 2018 ONSC 216, is one such case.
In Cotnam, the Court was tasked with determining whether a pre-retirement death benefit received by a surviving spouse was available to be clawed back into an Estate pursuant to section 72 of the Succession Law Reform Act (the “SLRA”). The Respondent took the position that section 48 of the Pension Benefits Act (the “PBA”) sheltered the death benefit from being clawed back given that she was the spouse of the Deceased. The Court disagreed and held that such benefits ought to be available for claw back in order to prevent irrational outcomes resulting from their exclusion.
In the context of the facts at play in Cotnam, the Court reasoned in favour of equity, in particular, to ensure a dependant disabled child of the Deceased was properly provided for. However, the Court’s reasons appear to gloss over a fundamental conflict between the SLRA and the PBA, a clash about which the estates bar might have appreciated some judicial commentary. Specifically, the Court held that the provisions of the SLRA ascribing pension death benefits as available to satisfy a claim of dependant’s relief ought to prevail over the PBA’s provisions sheltering them from claw back.
Section 114 of the PBA provides that, “[i]n the event of a conflict between this Act and any other Act […] [the PBA] prevails unless the other Act states that it is to prevail over [the PBA].” The SLRA, in contrast, is silent as to whether its provisions are to prevail over those of the PBA.
However, the Court’s reasons make no mention of the interplay between section 114 of the PBA and the equities of ensuring the dependant daughter in Cotnam was properly provided for. While we may opine on the fact that the outcome in Cotnam favours equity over rote statutory interpretation, the estates bar is left to grapple with the apparent inconsistency with the intention of the Ontario legislature, and whether it will affect similar decisions going forward. As of this date, no written decisions have yet interpreted Cotnam, nor has the decision been appealed. Accordingly, it may be some time before the impact of the decision, if any, is felt.
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